A guide to better negotiations.

Posted On 17th April 2018

Even though you might not realise it, you negotiate something every day whether it is persuading your toddler to eat her spinach or convincing your spouse that buying the 60-inch flat screen TV currently on sale would make your marriage so much better.

While most people perform this kind of “every day” negotiations without even reflecting on why or how; many people dread formal negotiations like hammering out a contract with a supplier or arguing for a pay raise. Arguably this comes from the fact that most people are not natural-born negotiators and also are quite terrible at negotiating optimal deals often leaving money on the table without even realising it. The good news is that by following a few simple steps how to prepare negotiations, by following well-established bargaining methods and by building an understanding of basic psychological traits influencing how people make decisions; most people can become strong negotiators.

This short guide presents a basic framework to efficient negotiations and is primarily based on leading research by the Harvard Negotiation Project (HNP) [2018] from which many of today’s leading authors of negotiation literature has borrowed their best ideas. Employing this framework in your next negotiation will help you prepare an efficient strategy, bargaining more efficiently and to build profitable, long-term business relationships.

1. The art of negotiation

Merriam-Webster defines a negotiation as “a process in which two or more parties resolve a dispute or come to an agreement” [2018]. Before getting our hands dirty discussing how to develop more effective negotiation strategies, it might be worth debunking what Leigh Thompson calls “the most prevalent myths about negotiation behaviours” [2013, p .6-8]:

#Myths about negotiation behaviours

Good negotiators are born.

Wrong. Very few people are naturally gifted negotiators. Effective negotiation requires practice and feedback.

Good negotiators take risks.

Wrong. While people tend to be impressed by tough negotiators and strategies (this is my final offer; take it or leave it), tough negotiators are rarely effective.

#Good negotiators rely on intuition

Wrong. Professional negotiators do not rely on intuition and gut feeling but on deliberate thought and planning.

2. Psychology a the negotiation table

Much thank to decision theory which is the science of trying to understand how decisions are made, it is now a well-established fact that we as humans, even though most of us might think the opposite, are quite irrational when making decisions [Malhotra and Bazerman, 2008]. Much of this comes from the fact that people to a great extent rely on a variety of “heuristics” or mental shortcuts in their decision process to reduce the mental effort that comes with having to make a decision. While you might not be familiar with all of the more than hundred known heuristics or cognitive biases which conscious or unconsciously influence your decision process; you probably, like most people, immediately judge new acquaintances just by the first look and not by taking time to get to learn the person (“stereotyping”); have a tendency to blame others when things go wrong while having no problem taking credit when things go as planned (“self-serving bias”); in addition to seeing past events as predictable (“hindsight-bias” or better known as the I-knew-it-all-along effect).

Learning about the most common cognitive biases and how they affect decisions is a well worth investment which not only will help you close more beneficial agreements at work and when buying your next house or car; but understanding how to exploit heuristic reasoning for your personal gains might also be a lifesaver next time your three-year-old lay down on the supermarket floor screaming to give you the cookies back.

Fig 2, below, presents all widely acknowledged cognitive biases:

3. Preparation

While Amazon lists over 30.000 results for ‘negotiation books’ of varying quality and all with their own twist and sometimes contradictive advice; most authors of negotiation literature at least seem to agree on one point – preparation is the key to success.

To get what you want in a negotiation you always should take time to think through your bargaining position and alternatives, besides also trying to figure out what the other side’s likely issues and alternatives are.

In her widely acclaimed book ‘The Mind and Heart of the Negotiator’ [2013], Northwestern University professor Leigh Thompson recommends that the first step when preparing a negotiation is to set a realistic but ambitious target – the so-called aspiration point. Thompson points out that while it is important not being an under-aspiring negotiator who sets the target too low resulting in disappointment and regret for not aiming higher when the counterpart immediately accepts your first offer (the so-called “winners course“), it is also important not to be over-aspiring, aiming too high.

The next step when preparing negotiations which is discussed in-depth by Roger Fisher in Getting to Yes [2011], is to determine your “best alternative to a negotiated agreement” (BATNA). Having one or a few fall-back alternatives in the back pocket if a negotiation fails (like a few more house options when you negotiate your next house deal) will help you to keep your head clear and to know when it is time to walk away from the negotiation table.

Fig 3, below presents Harvard Business School professors Deepak Malhotra and Max H. Bazerman recommended process to developing a strong BATNA as presented in their book ‘Negotiation Genius’ [2008]:

#Developing your BATNA

1. Identify all the plausible alternatives you might pursue if you cannot reach a deal with the current party.

3.1 Figure out what your counterpart wants

Efficient negotiators, however, do not only work to understand their own needs and wants, but also take time to analyse the other parties BATNA and reservation point to define the zone of possible agreement (the ZOPA). Understanding the ZOPA is vital for any negotiation by the simple reason that if a buyer’s reservation point is lower than the sellers, there is no ZOPA and no deal will be made (see Fig 4, below):

4. Negotiation strategies

In ‘The Science of Settlement’ [2013] Goldman stresses that one of the most important areas to consider when defining a negotiation strategy is to understand your own and the other parties’ negotiation style. According to Goldman negotiators can be divided into competitive’s which are inclined to hardball tactics and intimidation, and cooperatives inclined to joint problem-solving. Neither the pure competitive or cooperative style is likely to gain an optimal deal and Goldman identifies three common outcomes when these negotiation styles meet which is illustrated in Fig 5 below:

#Negotiation styles

Cooperative + Cooperative

When two cooperatives negotiate they often get a deal but many times settle too cheap leaving money on the table as they want to get the deal done as quickly as possible and avoid conflicts

Competitive + Competitive

Each party will posture and try to intimidate the other party which often leads to no deal getting made.

Cooperative + Competitive

The advantage often goes to the competitive who will lie and with the naïve cooperative believing him and giving in.

Fig 5:Negotiation styles (Goldman, 2013).

Goldman also emphasizes that negotiators should be aware of different negotiation styles, how individual negotiation styles interact; and most importantly, that negotiators should identify their own style to achieve optimal deals at the negotiation table. While there is a plethora of methods, tests and systems to identify personal negotiation styles; Figure x, below illustrate four acknowledged and well-known tests to determine your style of negotiation – each with its ins and outs.

4.1 Adapting for culture

Members of contrasting cultures not only focus on different aspects of an agreement but also have widely different styles and preferences for solving disputes and contractual issues. Considering a negotiation between an American and a Japanese.

The American, according to Perlmutter and Heenan [1974], will see the negotiation as a way to solve contractual issues while the Japanese will see it as an opportunity to establish a relationship; Japanese often negotiate as a large team, while for Americans it is not unusual that a single person negotiates even for large organisations. Japanese negotiators also might respond to a proposed negotiation term with silence and a long pause, which American negotiators often interpreted wrongly as a non-agreement from the Japanese side. These differences in styles of negotiation often leaves Americans feeling puzzled, lost and irritated in Japanese negotiations (Kumayama, 1991); while Japanese negotiators on the other hand often express finding Americans in negotiations as rude, non-cooperative and unstructured (Adachi, 2010). Fig 6, below illustrates some typical differences between American and Japanese negotiators.

#Typical differences between American and Japanese negotiators.

Japanese

Are less concerned with the pressure of deadlines;

Retreat into vague statements or silence;

Require frequent referrals to superiors or the head office;

Appear to slow down as complications develop;

Quickly feel threatened or victimized by aggressive tactics or
a stressful situation.

Americans

Are more conscious of time and feel the pressure of deadlines;

Become aggressive and/or express frustration sooner;

Often have more authority for on-the-spot decisions;

Fail to understand, or else misinterpret, Japanese non-verbal
behavior;

Experience a breakdown in the team organization, with members
competing to out-argue the Japanese and control their
team.

Fig 6:Typical differences between American and Japanese negotiators. (Adachi, Y., 2010).

When entering a cross-cultural negotiation, it is important to acknowledge the cultural norms of the other party and to adapt one’s strategy to these norms to avoid confusion, misinterpretations, to build better relationships, and ultimately negotiate optimal terms.

A number of cultural frameworks exist which identify cultural value systems, explaining traditions and recognises cultural differences which negotiators can use to better understand the other party in cross-cultural negotiations and to build optimal negotiation strategies of which I discuss five of the leading ones in this post ».

However; it is also important to note that any cultural frameworks only represent an “average” of cultural values within a national culture and thereby failing to acknowledge subcultures and cultural outliers within demographic and psychographic cultural segments; groups which in large countries can make up of many millions of people. It is therefore important that negotiators take time to learn about the limits of cultural frameworks as a tool for efficient cross-cultural negotiations.

Fig 7, below presents links to critiques of cultural frameworks which are well worth reading for anyone planning use cultural frameworks as part of their negotiation strategy:

#Critique of cultural frameworks.

Fig 7: Links to critique of cultural frameworks as a tool for negotiation strategy (Personal Collection)

It also important not to confuse cultural frameworks with physiological/personality frameworks such as The FiveFactor Model and Meyer Briggs. Personality frameworks can be an efficient instrument in, for example, an employment process where the applicant gets to perform a survey based on scientifically validated questions which map responses to the framework used for the survey such as any of the 463 inventories available for the five-factor model. In general negotiations where you have little or no knowledge of the individual personalities of the other party, however, personality frameworks by obvious reasons are of little use.

4.2 Expanding the pie

Before continuing, take a minute to read Fig 8,below:

Expanding the Pie; an example.

Imagine that you just got a bonus and decided to buy a brand-new Porsche. While you can’t see how a Porsche can be a bad choice as a family car, your spouse thinks the whole idea of buying a Porsche is ridiculous, pointing out that this is nothing else but a sign of a middle-age crisis. Your spouse also notes that not only will the car be super expensive to buy, but you will also need to pay for a heated and safe garage at least seven months per year as you live in Sweden where there are tons of snow in the winter, and consequently you only will only be able to use the car a few months in the summer.

After a few weeks of haggling you finally come to an agreement. You can buy the car but not for a dime over 150.000, besides also having do the dishes for the next ten years.

Visiting the dealer, you soon feel devastated after a long and hard negotiation over the price with the dealer finally explaining that 156.000 is the absolute lowest she can go without getting fired (her reservation point). With tears down your cheeks you put all cards on the table explaining that even if you wanted, your spouse simply would kill you if you paid a even a cent more than 150.000. Moreover; on top of the cost for buying the car, you also have the expense of winter storage which will cost you an additional 6.000 per year. The dealer then lights up. What if you for the next three winters got to park the car for free in their garage? This would save you 18.000 in storage costs, meaning, that even if you pay 156.000 for the car, it would actually not cost you more than 138.000 if subtracting the cost for the winter storage. Having just saved 12.000 you shout “deal” before she regrets her mind. In euphoria you turn the keys of your new Porsche and drive home seeing the sales person in the back mirror with a great smile on her face waving you good bye.

The second she lost sight of you she makes a big “happy jump” having made such a great deal. Sure; she only got 156.000 in the end which was the absolute lowest she could go, but she got the deal, and also, letting you park the car in their garage would cost her noting as they have plenty of space. And even better. As she knows you will come back every autumn and spring for the next few years, this will give her plenty of opportunities to build a profitable, long-term relationship and to sell you extra bling-bling. And who knows, maybe she even can convince you to buy a new model next winter.

Fig 8: Expanding the Pie; an example. (Personal Collection)

Fig 8, above is an example of integrative bargaining; a strategy of negotiation in which parties focusing on negotiating a win-win deal without having to make concessions which in negotiation literature often is referenced to as Expending The Pie. Integrative bargaining has won a lot of attention since the publication of ‘Getting to Yes” in 2011 and is a negotiation strategy recommended by most of today’s leading educators and literature of negotiation including Wheeler [2013]; Johnston [2012] and Thompson [2013]. Integrative bargaining not only can help to negotiate optimal deals for both parties but also to convert opportunities to profitable, long-term, client relationships.

4.3 Building a personal relationship

In ‘The Science of Settlement,’ Barry Goldman discussing the importance of rapport building in negotiations which is just a fancier term for building a harmonious relationship or “liking” with your negotiation counterpart. If both parties of a negotiation like each other on a personal level, the negotiation is more likely to open up for integrative bargaining, generating optimal terms for both parties in addition to long-term relationships with possible future opportunities. While you can come a long way in building a “liking” by simply taking time to initiate a negotiation by small talk for a few minutes, asking some personal questions and expressing admiration on the many fishing trophies placed at a prominent position on your negotiation counterpart; liking and personal relationships to a great extent relies on known psychological effects, such as the fact that we tend to like people that are similar to ourselves, the so-called similarity attraction effect [Montoya and Horton, 2012]. Learning about physiological effects and how they influence rapport building can help building trust, liking and more efficient negotiation strategies. Fig 9, below presents three physiological effects that can be used to build a personal”liking” in a negotiation:

#Physiological effects influencing negotiations

#Mirror and Match

Research show that we like people who are like us and by adapting your body language, tone-of-voice and communication style to that of your negotiation counterpart can help you develop rapport in a negotiation.

#Active listening

When someone perceives that you are actively listening to them they feel important, understood, appreciated, and respected and being a good listener is a great way to get build a liking in a negotiation process.

#Finding common interests

We tend to like people sharing the same interests as ourselves and a powerful rapport building technique is to identify common experiences and interests with the other party of a negotiation and bring those up in some small talk.

Fig 9: Physiological effects influencing negotiations (Goldman, 2012)

4.4 Repair broken trust

In ‘The Mind and Heart of the Negotiator’, L. Thompson points out that many negotiations fail due to broken trust. While reasons for negotiation breakdowns can be anything from poor communication, refusal to bargain or lack of planning [Ashe-Edmunds, 2018]; Thompson note that in case of a breakdown it is important to immediately take steps toward repairing the trust and proposes a twelve-step process presented in Fig 10,below. While you might not agree with each step of Thompson’s process, all professional negotiators should have a strategy for getting broken negotiations back on the table as a matter of contingency planning.

5. Conclusion

Most people are not natural born negotiators but by following some simple steps in preparing negotiations, by following well-established bargaining methods and by building an understanding of basic psychological traits influencing how people make decisions negotiators can raise their odds considerable in achieving optimal terms at the negotiation table. This post has presented a basic framework for efficient negotiations based on leading research by the Harvard Negotiation Project (HNP) [2018]. Employing this framework in your next negotiation will help you prepare an efficient strategy, bargaining more efficiently and to build profitable, long-term business relationships.

References

Adachi, Y. (2010). Business Negotiations between the Americans and the Japanese. Global Business Languages:, [online] 2(4). Available at: http://docs.lib.purdue.edu/gbl/vol2/iss1/4 [Accessed 15 Apr. 2018].

Saee, J. (2008). Best practice in global negotiation strategies for leaders and managers in the 21stcentury. Journal of Business Economics and Management, 9(4), pp.309-318.

Shonk, K. (2018). What is Negotiation? – PON – Program on Negotiation at Harvard Law School. [online] PON – Program on Negotiation at Harvard Law School. Available at: https://www.pon.harvard.edu/daily/negotiation-skills-daily/what-is-negotiation/ [Accessed 12 Apr. 2018].